A day of two halves yesterday as the pound opened weakly against the majority of the 16 most actively traded currencies before recovering in the afternoon to close with good gains posted against the euro.
In UK data, Ernst & Young LLP’s ITEM Club cut its UK growth forecast for this year and next to 0.9% and 1.5%, respectively, from 1.4% and 2.2% before. Amongst the possible risks envisaged, it suggests that UK unemployment could increase to 10% or more if the euro area debt crisis were to worsen. Its central forecast assumes that the Bank of England will expand QE further and not raise interest rates until November 2012.
Meanwhile, property listings web site Rightmove reported that its data showed that asking prices for houses in the south of England are more than twice those being asked in the north of the country. The gap between the two average asking prices is the widest it has been since Rightmove started keeping records in 2002, and prices in the north, defined as Wales, West Midlands, East Midlands, Yorkshire & Humberside, the North West and the North actually fell 0.7% in the month to mid-October, while those in the southern regions rose 4.7%.
The euro opened the week strongly, benefiting from the market’s positive reaction to the weekend announcements from the G20 finance minister’s meeting before the ‘euphoria’ was brought to an abrupt end after Steffen Seibert, spokesman for German Chancellor Angela Merkel, suggested that the forthcoming European Union summit meeting will not magically make the euro zone’s problems go away. Traders promptly switched out of the euro and the pound and US dollar.
Seibert said that anyone dreaming that the package of measures being prepared by Europe’s political elite “will mean everything will be solved and over by Monday” is going to have a rude awakening. The measures scheduled to be announced next week-end are “important working steps on a long path that will reach far into next year and on which more steps will have to follow,” Seibert told a news conference in Berlin.
Both the pound and the euro enjoyed a revival last week against the US dollar as a measure of ‘risk appetite’ returned to the markets before ongoing concerns about the problems facing the UK and euro zone drove the dollar higher as demand increased from its safe haven appeal.
At the opening bell this morning, the pound has continued to climb against the euro ahead of the publication of the UK inflation figures later this morning. Ratings agency Moody´s issued its annual credit report for France, the second biggest economy in the euro zone. Moody´s reported on the strengths of the French economy but also notes how its government´s financial strength has weakened, as in other euro zone sovereigns with its government debt metrics amongst the weakest of France´s Aaa peers, exerting pressure on the stable outlook for the government´s debt rating.
In another downward pointer for the world economy, the Chinese statistics bureau has this morning released a barrage of ‘mixed’ economic data which has apparently led some commentators to wonder if the euro zone´s travails are being felt as far away as the shores of the Pacific Ocean. In particular, China´s gross domestic product growth (GDP) rose by ‘only’ 9.1% on year in the third quarter, following a rate of 9.5% in the second quarter.
Lastly, in a Bloomberg interview this morning, well known economist Nouriel Roubini warned that a ‘soft landing’ in the Chinese economy is fanciful thinking. He expects a so-called hard landing to arrive by 2013 and 2014, as a result of over-investment and coinciding with a transfer of power within the Chinese Communist Party.
